Unfair but balanced commentary on tax and budget policy, contemporary U.S. politics and culture, and whatever else happens to come up

Monday, January 25, 2010

More cowardice?

I am probably not the only person who has been wondering if the word "cowardice" fits Democratic behavior, in the White House and/or on Capital Hill, since the Massachusetts election news. I agree with others who find it overwhelmingly obvious that having the House pass the Senate healthcare bill, even without mutually agreed changes through reconciliation, both (1) is in the Democrats' electoral self-interest for this November and thereafter, given the votes already on record, and (2) for anyone who supported the House bill, is far superior as policy to doing anything less.

Thus, it seems to me that only panic and cowardice could explain their failure to take this obvious step - although I recognize that they may still do it, and that perhaps the muted response so far simply reflects ongoing internal negotiations. Frankly, I would bet a lot of money that (1) they will end up doing virtually nothing, (2) they will pay a huge price for this in November (even though the bill is currently unpopular!), and (3) never in the next 10 years (at least) will they come close to passing anything similar.

These guys make the New York Mets ownership look good, which isn't easy.

I thus had a mental frame in mind when I heard the latest discouraging news, which is that the Obama Administration, in floating a supposed draft version of the State of the Union speech, is proposing to expand the child tax credit WITHOUT making the expanded credit refundable.

As Brad DeLong notes, this means that, "if you earn less than $30K, you get zero. If your cash income is between $30 or $40K, there are nine chances in ten you get zero. If your cash income is between $40K and $50K, there are two chances in three you get zero. Even if your cash income is between $50K and $85K, there is still one chance in four you get zero."

Policymakers in the Obama Administration understand perfectly well that, merely because you put a transfer based on household circumstances into the income tax, there is no good reason why it should be nonrefundable, i.e., limited to this year's income tax liability. It would appear that they are afraid to argue for the policy design that they know is the better one, and for which there are powerful arguments of equity. But even if they suspect that Congress wouldn't enact the credit with refundability, why not at least propose it? Is the lesson they learn from one quirky special election that, from now on, they must talk like anti-income tax, anti-"spending" (based purely on form) Republicans? The battle to be the more Republican-like party in the November election is not one that they can expect to win.

UPDATE: And I guess we've just been scratching the surface. A 3-year discretionary spending freeze, in the middle of a recession, when supposedly they were going to focus on jobs? Readers know I'm in the very, very concerned camp when it comes to deficits, but that is a long-term problem that has little to do arithmetically with the levels of discretionary spending that we are talking about here. In the broader context, this is like scratching a mosquito bite while you're bleeding from the ears (read: revenue inadequacy and entitlements growth). It's insultingly stupid, craven, and tone-deaf, even though they need to address both the long-term picture and the political perceptions that came out of the stimulus. But the frightened defensiveness, the lack of credibility, the complete surrender of intelligent discussion and accompanying tacit admission that the loons on the other side were right all along - are these people complete amateurs in politics as well as economics?

I've grown disgusted at some point - sooner with some, later with others, and of course in varying degrees - by every president since Johnson. (Too young for the only two during my lifetime who came before.) Believe it or not, I tried to find GW Bush tolerable, or at least not in all respects irredeemable, for well over a year. Now it's just a year in, and though I recognize the other side is vastly worse, I may be starting to reach my gag limit again.

There are plenty of smart, principled people working in this administration. Unless they know something I don't, before too many months pass they may want to consider resigning.

About Me

I am the Wayne Perry Professor of Taxation at New York University Law School. My research mainly emphasizes tax policy, government transfers, budgetary measures, social insurance, and entitlements reform. My most recent books are (1) Decoding the U.S. Corporate Tax (2009) and (2) Taxes, Spending, and the U.S. Government's March Toward Bankruptcy (2006). My other books include Do Deficits Matter? (1997), When Rules Change: An Economic and Political Analysis of Transition Relief and Retroactivity (2000), Making Sense of Social Security Reform (2000), Who Should Pay for Medicare? (2004), Taxes, Spending, and the U.S. Government's March Towards Bankruptcy (2006), Decoding the U.S. Corporate Tax (2009), and Fixing the U.S. International Tax Rules (forthcoming). I am also the author of a novel, Getting It. I am married with two children (boys aged 24 and 21) as well as three cats. For my wife Pat's quilting blog, see Patwig’s Blog.